Reserve Bank cuts South Africa’s growth target

The South African Reserve Bank (Sarb) has revised its GDP growth forecast downwards for 2016, from 0.8% to 0.6%, noting that the domestic economic growth outlook remains weak.

“While a recovery is still expected in the next two years, the forecasts for both these years have been revised down by 0.1 percentage point to 1.3% and 1.7%,” said Reserve Bank Governor, Lesetja Kganyago, of the outlook for 2017 and 2018.

“While the Bank’s forecast for GDP growth in the quarter is barely positive, it does represent the low point of the forecast, and a slow upward trend is expected going forward,” Kganyago said.

He said that the economic slow down is also reflected in labour market trends, with the unemployment rate rising to 26.7% in the first quarter of 2016, from 26.4% year earlier.

South Africa Reserve Bank Governor, Lesetja Kganyago

The Sarb left its benchmark repo rate unchanged at 7.0% on Thursday, while lending rates remain at 10.5%.

Kganyago said that inflation is now expected to average 6.7% in 2016, compared with 6.6% previously. In 2017 and 2018 inflation is expected to average 6.2% and 5.4%, marginally down from the previous forecast.

The expected peak, at 7.3% in the fourth quarter of 2016, is unchanged, SARB said.

The forecast for core inflation is slightly improved, with a lower forecast for 2016 of 5.9% from 6.2% previously. Forecasts for 2017 and 2018 are unchanged at 5.7% and 5.2%, the Bank said.